"We're in a market with a very low level of confidence," said Al Goldman, the chief market strategist at Wachovia Securities. "We're making a bottom by wearing people out," he said, adding, "Remember Geritol — for tired blood? The market needs a daily dose of Geritol!"

But let the investor beware: Light end-of-summer volume can burn you like too much time on the beach without sunscreen.

"If you have no volume, this market's going to move around like a paper airplane," Steve Grasso, a broker for Stuart Frankel, told CNBC. A trader could be up 10 percent, then down 10 percent within 1-2 days in a market like this, Grasso explained.

Financials were the day's biggest decliner, falling more than 3 percent.

"It's still about the financials," Grasso said. "There's absolutely nothing that's attractive about this whole sector going forward in the near term."

AIG was the biggest drag on the Dow. The stock tumbled 5.5 percent to close at $18.78 after Credit Suisse cut its third-quarter estimate and price target for the insurer, citing hefty losses at the company's derivatives business. Given AIG's credit-default swap portfolio, it's one of the most exposed to recent credit deterioration, Credit Suisse said. The firm estimates that AIG is facing a $6.5 billion loss, more than twice the firm's prior estimate of $2.6 billion.

Financials had a lock on all three of the top Dow decliner spots, with AIG followed closely by Bank of America and JPMorgan .

Among other Dow components, Caterpillar , an industrial conglomerate with heavy overseas exposure, fell 2.4 percent amid worries that the U.S. slowdown is now spilling across the globe.

The International Monetary Fund trimmed its outlook for 2008-2009 world economic growth, taking 2008 down to 3.9 percent from last month's estimate of 4.1 percent, and 2009 down to 3.7 percent from 3.9 percent.

Fannie Mae gained 3.8 percentand Freddie Mac jumped 17 percent after Freddie Mac sold $2 billion of debt Monday, aiming to reassure investors that it can stay afloat without a government takeover. Citigroup analyst Bradley Ball said a government rescue wouldn't necessarily wipe out shareholders and that the home-financing giants still have options.

Adding to the credit jitters, regulators shuttered Kansas-based Columbian Bank and Trust Co., the ninth U.S. bank to fail this year, and Indiana sued Countrywide Financial, becoming the latest state to take the mortgage lender to court over its lending practices.

Crude oil rose 52 cents to settle at $115.11 a barrel after the biggest one-day percentage drop in nearly four years on Friday, when crude fell more than 5 percent, ending the week at $114.59.

The dollar fell against the yen, but gained against the euro. At one point, the U.S. currency hit a two-year high against the pound amid increased worries about a UK recession.

General Motors and Ford slipped following a report that U.S. auto makers are likely to post big declines in August sales despite a slight improvement in industrywide sales.

Outside of financials, the big news of the past week has been that U.S. auto makers are seeking a bailout from the U.S. government. The Big Three plan to urge Congress to support funding of up to $50 billion in low-interest loans over three years to help them modernize their assembly plants and develop next-generation fuel-efficient vehicles, with representatives of the industry insisting this is not a bailout but a response to the new market conditions.

Shares of Advanced Micro Devices rose 2.1 percent amid news that the company will sell its TV-chip division to Broadcom for $192.8 million. The sale is part of AMD's plan to pare debt and boost profitability. Broadcom shares skidded 4.6 percent.

In economic news, existing-home sales rose 3.1 percent to a 5 million annual rate, the highest level in five months, as discounts lured buyers, the National Association of Realtors said. The national median existing-home price dropped 7.1 percent from a year earlier to $212,400.

The rise in home sales was an encouraging development, that some buyers are willing to take a chance on this battered market. But curb your enthusiasm: A lot of the sales were of foreclosed homes.